Why Regulatory Reform is Necessary but Elusive

In an op-ed published in the American Banker last week, Eugene Ludwig, CEO of Ludwig Advisors, examines the challenges of reforming US bank regulation, highlighting past failures and political obstacles.

The Trump administration seems inclined to consolidate agencies to reduce costs and improve efficiency, Ludwig explains. This may include shifting the Federal Deposit Insurance Corporation's (FDIC) supervisory role to the Office of the Comptroller of the Currency (OCC), placing the FDIC's insurance and resolution functions under the Treasury, and limiting the Consumer Financial Protection Bureau's (CFPB) influence. While the CFPB is not set for elimination, its resources are likely to be cut.

"Successfully achieving these reforms will take strong organizational skills, as well as legislative adeptness to secure congressional 'buy in,'" Ludwig, who served as the Comptroller of the Currency from 1993 to 1998, writes. "This type of streamlining is not a new or partisan idea — Congress seriously considered it in the early 1990s, with the Clinton administration pursuing it vigorously in 1993 and 1994. At the time, the idea had broad bipartisan support from both House and Senate Republicans and Democrats."

However, past reform efforts failed due to "agency turf battles," he warns. Legislative action is necessary to make meaningful change, but that is hard to achieve, Ludwig adds. And given the politics around such reforms, bringing about such legislative action would likely require direct involvement by President Trump, he suggests. While the President has made his support for deregulation and consolidation clear, it remains to be seen whether he will commit the needed time and political capital to push it through.

"While I strongly support regulatory simplification and reducing excessive complexity, I am well aware that entrenched regulatory turf battles and the short-term allure of arbitrage make meaningful reform unlikely," Ludwig concludes. "The pressures to maintain the status quo remain powerful, making the path to a more efficient and balanced supervisory system a challenging one."